Steel Shortages Continue to Wreak Havoc on Construction

Los Angeles metro construction deliveries slowed in third quarter 2021 with more than 1.9 million square feet entering the market, which may be attributed to increases in material prices and supply chain constraints, according to a Kidder Mathews report. Some 24.5 million square feet remains under construction, says the report.

In the Greater Los Angeles region, steel shortages are one of the greatest challenges, delaying items from wood roof sheeting to dock equipment, which is taking as long as seven months between order and delivery, indicates a CBRE report.

“The slowdown in construction starts is amplified by the lack of steel, which can take 12 to 15 months to receive after an order has been placed,” said Dan de la Paz, CBRE Ontario-based executive vice president. “This is causing historical premiums on space that is immediately available. In the third quarter alone, we saw Inland Empire rents for spaces 100,000 square feet and larger increase by 20 to 30 percent. This type of extreme growth, coupled with high development costs, will undoubtedly create record pricing for industrial product in this region for 2022 and 2023.”

With a historically low vacancy rate of 3.6 percent, warehouse users are often hard-pressed to find new space for expansions to keep up with demand. The tight market has caused rent growth to soar, rising 10.4 percent year-over-year as of third quarter.

“The industrial market is as tight as it has ever been and the slowdown for construction deliveries is something we are watching closely,” said John Morris, executive managing director and leader of CBRE’s industrial and logistics. “The business and consumer spending that is driving it forward need more product to help alleviate some of the pressure on tenants as they struggle to find new space. While Q3 was a strong quarter for construction completions, the second-highest quarter ever, new supply overall is not keeping up.”

The Kidder report says activity is expected to remain robust as demand continues to outpace supply. “Anticipate renewals to increase in the following quarters as historically low vacancies sweep across the LA Basin, providing limited options for relocations,” says Gary Baragona, Kidder Mathews director of research. “With competition increasing and properties frequently obtaining numerous offers, rental rates will continue to increase at rapid pace.”